Paragon Commentary

Futures File: Cocoa, Soybeans & Oil Higher

Feb 23, 2018

Bitter Outlook for Cocoa

Cocoa prices are heating up, with the market steaming to a four-month high this week. Futures are climbing on concerns about dry weather hurting the crop in Ivory Coast, the world’s largest producer of cocoa beans.

70% of the world’s cocoa comes from West African nations like Ghana and Ivory Coast, making the world market especially prone to shocks. In addition to weather, there have been rising fears of diseases affecting the crops, including the cacao swollen shoot virus that is devastating production. There is no known cure, and the virus can wipe out groves in as little as four years.

Despite the recent 20% climb in prices, Friday’s value of $2150 per metric ton is still relatively cheap compared to prices that were near $3,000 from 2014-2016, making it an interesting market to watch, even if you don’t have a sweet tooth.

Soy Streak Continues

Soybean prices rallied for a third straight week, nearing one-year highs on Friday. The market is climbing as dry weather continues to plague Argentina, the world’s third-largest soybean exporter. As Argentinian farmers lose more of their bean crop to bad weather, global buyers, like China, will be more dependent on U.S.-grown beans.

This realization prompted the USDA to project tight soybean supplies in the U.S. before this fall’s harvest; in the newest revision, the ending stocks or “carryover” are now projected at 530 million bushels, a figure that could get tighter if Argentina loses more of its crop to drought.

These fears have prompted end users, like livestock feeders, and investors to buy soybeans, while farmers are emboldened to hold onto their soybeans in hopes of higher prices, a phenomenon that is creating the current bull market.

As of midday Friday, March soybeans traded for $10.39 per bushel.

Oil Gushes to New High

Crude oil buyers struck it rich this week as oil futures ran to a two-week high, trading near $64 per barrel on Friday. Prices have risen nearly $6 per barrel (+10%) in the last six trading sessions after bargain hunters swooped into the market.

Prices exploded on Thursday after government data showed a sharp weekly decline in oil inventories, suggesting that demand is outpacing production.

Oil has been climbing as investors grow more confident about the U.S. economy after a week of stable U.S. stock markets and recent commentary from the U.S. Federal Reserve projecting stronger growth.